NEW LEGISLATION: Derivatives Oversight Rep. Jim Leach Chairman, House Banking Committee House Banking Committee Chairman Jim Leach introduced six bills on the first day of the 104th Congress. The "Risk Management Improvement and Derivatives Oversight Act" would require expanded internal controls for banks buying and selling derivatives. The measure, HR 20, also would create a Federal Derivatives Commission to establish oversight standards for federal banking agencies that watch over financial institutions involved with derivatives. Rep John Dingell D-Mich Glass-Steagall Reform Prospects for Glass-Steagall reform increased dramatically this year as the new Republican majority on Capitol hill knocked Rep. John Dingell from the Energy and Commerce Committee chairmanships. Another Leach bill, the "Financial Services Competitiveness Act," would repeal section 20 of the Depression-era Glass-Steagall Act. This would allow bank holding companies, without limits, to own a securities affiliate engaged in the underwriting and dealing of securities. The legislation, HR 18, also would permit a bank and a securities affiliate to share officers, directors, and employees. The measure would provide for certain "firewalls" between banks and securities affiliates, including a provision that would prohibit a bank from making loans or issuing guarantees to securities affiliates or investment companies sponsored by securities affiliates. Securities firms would be allowed to acquire insured banks by becoming bank holding companies. The measure also would eliminate growth caps on grandfathered nonbank banks. Regulatory Consolidation Rep. Henry Gonzalez D-Tex. The third of Rep. Leach's first-day bills, the "Bank Regulatory Consolidation and Reform Act," aims to create a new federal banking agency by merging the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The new regulator, to be called the Federal Bank Agency, would oversee all federally chartered insured banks and thrifts. Bank holding companies with insured depository institution assets under $25 billion and all savings and loan holding companies would be overseen by the agency as well, as long as the primary depository institution of the holding company is federally chartered. Under the measure, HR 17, the Federal Deposit Insurance Corp. would get jurisdiction over all free-standing state-chartered thrifts and state nonmember banks. The Banking Committee's ranking Democrat, Henry B. Gonzalez, has opposed maintaining, much less enhancing, a regulatory role for the Fed. Fair Trade in Financial Services Rep. Charles Schumer D-N.Y. Another bill introduced by the House Banking Committee chairman on Jan. 4, would require the Treasury secretary to identify countries that are denying national treatment to U.S. banks and securities firms. Under "The Fair Trade in Financial Services Act" Treasury could then recommend sanctions against the offending foreign banks or securities firms. The measure, HR 19, would bar financial service companies of countries that do not provide U.S. financial companies national treatment from engaging in new activities in the United States. Rep. Charles Schumer, D-N.Y., is a co-sponsor. Fed President Selection Sen. Paul Sarbanes D-Md. Rep. Leach introduced the "Federal Reserve Governance Act" to change the "democratically unseemly" process by which presidents of the 12 regional Federal Reserve banks are chosen. Currently, presidents are selected by nine-member boards of directors whose membership includes up to six private-sector banking industry representatives. Mr. Leach has expressed concerns that the Fed bank presidents are responsible for regulating the same institutions that may have selected them. The measure, HR 15, would give the Fed board of governors the responsibility for selecting the regional Federal Reserve bank presidents. If the legislation makes it over to the Senate, it is likely to earn the support of Sen. Paul Sarbanes, the Senate Banking Committee's ranking minority member. Sen. Sarbanes has railed against the Fed president selection process for years. IRA Expansion Sen. William V. Roth R-Del. Sen. John Breaux D-La. Contributions to individual retirement accounts would become fully deductible once again under the "Roth-Breaux Super IRA" bill, introduced by Sen. William V. Roth, R-Del., and Sen. John Breaux, D-La. The bill, S 12, would expand the traditional IRA by allowing penalty-free early withdrawals of IRA savings for college expenses, first-time home purchases, catastrophic medical expenses, and certain unemployment emergencies. Rep. Bill Thomas, R-Calif., is expected to introduce a companion bill in the House. EXPECTED LEGISLATION: Financial Services Diversification Sen. Alfonse D'Amato Chairman, Senate Banking Committee Senate Banking Committee Chairman Alfonse M. D'Amato has said that he expects to introduce a bill similar to the "Depository Institution Affiliation Act," which he sponsored in 1989. That bill aimed to amend the Bank Holding Company Act to allow any type of commercial business to own a financial institution, and vice versa. The bill also is expected to contain provisions that reform the Glass- Steagall Act. But Sen. D'Amato appears prepared to go further than the measure proposed by Rep. Leach, who has said that he is against mixing banking and commerce. Legislative sources expect the bill to be introduced sometime this month.
